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I. FORMS AND REQUIREMENTS OF NEGOTIABLE INSTRUMENTS: A negotiable instrument must: 1. Contain an unconditional promise or order to pay; 2. Require payment of a fixed amount of money, with or without interest; 3. Be payable to bearer or to order at the time it is issued or first comes into possession of a holder; 4. Be payable on demand or at a definite time; 5. Not state any other undertaking or instruction. -must take the form of a writing. Note – the maker promises to make payment to the order of the payee. Draft – the drawer has placed funds in the hands of the drawee. The drawer instructs the drawee to pay some or all of the funds to the payee. -an instrument that meets all the other requirements of negotiability, but that is not made payable to bearer or order and that is a check is negotiable. Fixed amount of money – if it can be determined from the instrument without reference to any external source. Applies only to principal and not interest. Must be money. Unconditional promise or order – -conditions not stated in the instrument will not defeat the unconditional requirement. -cannot be subject to or governed by another writing. -however, can include a reference to another writing for a statement of rights with respect to collateral, prepayment, or acceleration of payment. -ok if limited to a particular fund. Payable on demand or at a definite time – -if there is not time for payment stated on the written promise, then it is payable on demand (check). -a writing that is payable only on the occurrence of an act that may not occur or that will occur at an uncertain time is not payable at a definite time. -an instrument made payable both to order and to bearer is payable to bearer. II. THE CONCEPT OF HIDC: -one who is a holder of an instrument generally has no greater rights than does an assignee of a simple contract. -HIDC requirements: 1. Must be a holder
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2. Must take the instrument for value 3. Must take in good faith 4. Must take without notice of defenses that might be available to the obligor or that there are defects in the instrument 5. Must not bear evidence of forgery or alteration Holder – bearer instrument = person in possession of the instrument. Order instrument = the person identified as the party to whom the instrument is payable, if that person is in possession of the instrument. Possession – there are some situations in which a party without actual possession of an instrument is entitled to enforce the instrument as if he was a holder of the instrument. The owner of an instrument that has been lost or stolen may recover from any party liable on it by proving (i) that he had possession of the instrument and the right to enforce it when the loss of possession occurred, (ii) that loss of possession was not the result of a transfer by him or a lawful seizure, and (iii) that he cannot reasonably obtain possession of the instrument because of destruction, loss, or theft.
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